10/12/2023
**MONEY-TAXES**
IRS To Issue More Than 20,000 Letters Denying Employee Retention Credit Claims
Dec 7, 2023,07:45am EST
The IRS has announced that it is sending more than 20,000 letters to taxpayers notifying them that their Employee Retention Credit, or ERC, claims have been disallowed. These letters are targeted to taxpayers the IRS believes are not eligible and who have applied for, but have not yet received the credit.
This initial round of letters is being sent as the IRS continues increased scrutiny of ERC claims. In September of this year, citing "rising concerns about a flood of improper Employee Retention Credit claims," the IRS announced an immediate moratorium on processing new ERC claims. The pause will run through through at least the end of the year—no new claims will be reviewed or processed until early 2024.
In October, the IRS introduced a new withdrawal option, allowing certain employers that have filed an ERC claim but have not received a refund to withdraw their submission and avoid future repayment, interest, and penalties. Employers that have submitted an ERC claim that's still being processed can withdraw their claim and avoid the possibility of getting a refund for which they're ineligible.
Later this month, the IRS intends to unveil a separate voluntary disclosure program which will allow those taxpayers who received questionable payments to make a disclosure and avoid future IRS action.
Disallowed Claims
Taxpayers who are ineligible for the credit will receive Letter 105 C, Claim Disallowed. Taxpayers who receive this letter fall into two categories: their entity did not exist during the ERC timeframe or they did not have employees for the time period when the credit was claimed.
"With the aggressive marketing we saw with this credit, it's not surprising that we're seeing claims that clearly fall outside of the legal requirements," said IRS Commissioner Danny Werfel. "The action we are taking today is part of an initial set of steps in our compliance work in this area, and more letters will be going out in the near future, including both disallowance letters and letters seeking the return of funds erroneously claimed and received."
The mailing reflects just part of the ongoing IRS review of these claims.
What To Do
If you receive a letter, read it carefully. The letter will explain that if you disagree with the disallowance, you can respond with documentation that supports you eligibility or claim amount, or you can file an administrative appeal.
The IRS says that sending out the letters will help ineligible taxpayers avoid audits, repayment, penalties and interest, as well as protect taxpayers by preventing an incorrect refund from going to an ERC promoter. The letters will also save IRS resources by disallowing incorrect credits before they enter the audit process.